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What's More Important: Your Credit Score or Report Data?

Posted by Paul Anderson-Riley in Credit Score on 24 May 2018 - Paul is a Credit Analyst at checkmyfile

The relationship between your credit score and your credit history seems to be cyclical: a good credit history gives you a good credit score and a good credit score means you should have easy access to credit, right? Well, in a way. But you might be surprised at how much of a role a ‘score’ really plays when it comes to borrowing.

Although scores do play a part in your ability to get credit, from a consumer point of view it’s more important to view your credit file as a whole and assess the data it holds – because that’s exactly what lenders will do.

A credit score is simply a way of distilling that information into an easy-to-understand summary – but in truth, it’s vital to look at each individual component.

checkmyfile lets you see what lenders see, with information from four Credit Reference Agencies, not just one, giving you the best idea of how they will be likely to view your application. You can try checkmyfile free for 30 days and then for just £14.99 a month afterwards, which you can cancel at any time.

When your score is useful

Many people are quite happy to condense their credit worthiness down into their score alone - and generally speaking, as long as the scorecard behind the number is relatively accurate, it should give you a broad idea of how a typical lender will view you. If your score is high, it probably means your finances are in good order, if your score is low, it might be indicative of negative information on your credit file, or an absence of any kind of credit history.

checkmyfile was the first company in the world to lift the lid on credit scoring, and the first in the UK to make full credit files available to view online.

Limitations of a score

Without digging into the data behind your credit score, you’re only seeing part of the picture.

There are any number of reasons that your score could be lower than average but without helpful guidance, it’s easy to overlook. That means that your chances of improving your score and chances of being approved for credit will be limited.

It’s also far too easy to put too much faith in a credit score. Each lender will have its own criteria in terms of the sort of customer it wants to attract, and the way that it will assess the information contained within your credit report.

How do lenders generate their score?

Lenders do use credit scoring to assess credit applications, and as a rule they are largely automated (and have been for a long time). It has been proven that a good credit scorecard (the algorithm that assesses the data) will make more accurate lending decisions (and in a fraction of the time) than a person could.

The data used to assess your application is shared by lenders and other organisations that you’ve had a relationship with in the past, in conjunction with a number of public databases such as the Electoral Roll and Registry Trust.

The way that you’ve managed past credit agreements (if you’ve had any) and your current levels of borrowing, as well as indicators such as stability and trend are used to assess what sort of ‘payer’ you will be, including whether you’re likely to pay back any money it lenders you, or default with a sum outstanding.

The level of ‘risk’ that a lender is prepared to take on that last point is the one that determines whether or not you’ll be accepted, and also the rate of interest that you’ll be asked to pay.

What your credit history says about you

Most lenders will pick apart your credit report data, using what they believe is most relevant to them and the finance product you are applying for.

The data represents you, your addresses, financial commitments and associations and your credit history – how you’ve repaid credit accounts in the past. This allows lenders to get a feel for how likely you are to maintain a financial agreement going forward.

For this reason you will need to ensure that all information on your report is correct. Accuracy is of vital importance, even a slight error on an important piece of data could impact a credit application and you may not necessarily pick up on this if you focus on the score rather than the credit report data.

On rare occasions, you might find an error on your credit report, which could have an impact on your ability to get a loan if left unchanged. Usually, changing incorrect information on your credit report is simple, but without checking your credit report first, you won’t know what issues if any might be waiting.

This is a key advantage of checking your entire credit report over just your score: a score might not indicate that there are any errors on your file, but your report will show any errors immediately.

If you don't have a credit history

If you have held numerous credit agreements in the past, then a prospective lender should have plenty of information on which to base their decision.

If you’ve never felt the need to borrow or even take out a contract mobile phone, then it might be a different picture.

That’s because in the absence of past evidence about how you manage credit agreements, lots of lenders will be reluctant to approve an application – you’re essentially an unknown quantity. This situation can be exacerbated if you’re not on the electoral roll at your current address, as it means lenders don’t even have an address that they can confidently attribute to you.

This serves as a good example of why it’s important to look at the data, and not the score. You could see two people with exactly the same ‘score’ but very different reasons for it being what it is – one with a negative payment history and one with no payment history at all.

Which is more important?

In summary: the data is the most important thing when it comes to really understanding where your credit stands. Your credit score really is a useful tool and will give you a good indication of how a typical lender will view you, but it’s the data behind it that really matters.

To see the data on your file, you need to check your credit report. If you haven’t already, you can try checkmyfile FREE for 30 days, then for just £14.99 a month afterwards, which you can cancel at any time. You’ll get complete access to the UK’s most detailed credit report, with information from 4 Credit Reference Agencies, not just 1, so you can see what lenders see.

The first ever idea of a Credit Score was introduced in the 1950s in the United States. Almost by accident, as Bill Fair and Earl Isaac discovered that a study looking at a potential predictor of ill health could be better used to predict bankruptcy and default. They teamed up to form Fair Isaac, Inc, now FICO, to sell credit scores to lenders. FICO scores are now household names by consumers in the US, as they are used extensively, with little competition.

Increased consumer awareness of the importance of a good Credit Score in recent years means that most people applying for a mortgage, loan or other form of finance know that the odds of their application being successful largely depend on the information contained within their Credit Report (among other factors) and how the lender in question interprets it.

Would-be borrowers in the US have been given a potential new route when it comes to proving their creditworthiness to potential lenders, thanks to the recently announced UltraFICO score, which looks beyond the information traditionally used to assess credit applications.

When thinking about your finances and your eligibility to take out a loan, credit card or any form of borrowing, it’s tempting to boil your creditworthiness down into one single ‘make-or-break’ Credit Score. It’s not quite that simple though.

Whether you’re planning on applying for credit in the very near future, or you just want to make sure that everything is as it should be, it pays to check your Credit Report. In many cases, there will even be easy steps you can take to improve your Credit Rating.

Credit checks are an integral part of modern life: from buying a house or car to applying for a new job or passing a tenancy check, your Credit Report is remarkably versatile. But considering what an important role it can play, there are still a number of popular myths surrounding them.

Launched in 2012 and expected to be fully-implemented by 2020, China’s Social Credit System (SCS) could be described as at best an invasion of privacy and at worst a simple case of unabashed state-controlled oppression. Based loosely on the principles used in traditional credit scoring, this system goes several steps further to score you as a citizen and assesses how much you contribute to/hinder society.

In case you were looking for another good reason to check your credit file, we’ve got some good news for hopeless romantics: a recent survey by Discover and Match Media Group (owner of online dating sites including Match.com, Tinder and OkCupid) found that a good credit score is considered even more attractive to potential suitors than having a nice car.

Tenants have often felt hard done by, receiving no recognition or reward for keeping up with their single biggest monthly outgoing: rent. For that reason, many across the UK will welcome the news that it’s now been made easier for landlords and letting agents to report rent payments to credit reference agencies, finally contributing to their credit file.

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